Naval Postgraduate School Foundation's relationship with school under scrutiny

The leaders of the Naval Postgraduate School Foundation have planned no major changes in the wake of a Navy report that criticized the organization and claimed the jobs of the school's top officials.

How NPS President Dan Oliver and Provost Leonard A. Ferrari used foundation funds was a key component of last week's report, although the 42-year-old group has not been officially accused of wrongdoing.

Navy investigators claimed the nonprofit foundation, a separate legal entity from the Monterey school, was complicit in helping NPS's top officials skirt Navy and federal rules by doing things such as maintaining separate funds for Oliver and Ferrari instead of giving funds directly to the Navy.

Foundation Chairman Retired Adm. Henry H. Mauz said Friday there would be no major changes for the nonprofit in the near future.

"We're going to continue raising funds for the school and the students," he said, "and promote the educational experience there."

The Naval Inspector General's report recommended the Secretary of the Navy assess the relationship between the school and the foundation.

"The Foundation ... appears willing to undertake actions on behalf of NPS that Foundation leadership knows would be improper if attempted by NPS itself," the report said. "This is inexcusable and intolerable."

· Controlled a $50,000 "recruitment and retention" account made up of foundation money — avoiding approval by Navy officials, as required.

The Navy said Ferrari held a similar provost account of foundation money. This also violated rules about the Navy being offered all gifts directly.

Mauz criticized the report as using "damning words and language," having errors and implying the foundation was bribing people.

"We were following the rules as best we understood them," he said.

The foundation released a statement Wednesday in which it said it "has always endeavored to comply with all Navy and (Department of Defense) regulations" and would "continue to do so without exception."

Foundation President Bill Warner said Wednesday the issue was not how the group used its money but the process by which officials accepted it.

"Nobody used the gifts improperly," he said.

Executive Director Merrill Ruck declined to be interviewed but sent a list of the foundation's accomplishments to The Herald. They include $3.5 million raised for injured veterans, assisting in the renovation of the Arizona Garden and Herrmann Hall on campus and a quarterly event to showcase the school's research and student programs.

The group's trustees have just two set meetings a year, although they occasionally have special meetings and have committees that meet separately, Mauz said.

Trustee Donald R. Beall said he expects the organization would soon meet to discuss the report.

"I'm sure we'll examine every possible way to continue in the right way to provide support to this tremendous organization," he said.

According to its tax records, the foundation raised $1.5 million in 2010, $1.4 million in 2009 and $1.6 million in 2008.

Nearly all funds came from contributions and grants, with moderate assets from investments and other revenue.

The organization's mission is to "foster education" at the school, tax records say.

The group held one of its biggest fundraisers of the year, the Grand Winter Ball, on Saturday. The event netted $155,900 in 2010, according to records.

Possible donor reaction

The NPS Foundation could be hearing from donors about how their money was spent, based on the experience of experts who work in the nonprofit world.

Monterey Institute of International Studies professor Kent Glenzer, who spent 27 years with nonprofit organizations, said good nonprofits always scrutinize how they spend money.

"The appearance of impropriety is something that every nonprofit I have ever worked with is deeply concerned about," he said. "If I have to turn around and justify this expenditure to a donor ... would this pass the reasonable person test?"

He said that in general, donations will be either restrictive, requiring funds to be used for a specific purpose, or unrestrictive, meaning they are not earmarked.

The Navy's report on Oliver described two foundation gifts that seem to fill the latter type.

The foundation gave $50,000 for the recruitment and retention account and another $50,000 for a "President's Office" account that paid for events the office held and for items in the foundation's gift shop.

No matter how gifts are given, donors almost always want to know how they are used, Glenzer said.

Jackie Wendland, who collects donations and grants directly for CSU Monterey Bay's Advancement Office, said there is almost always some type of reporting requirement attached to donations.

She said some donors require line-by-line explanations of how their money was used. Others are more lenient, asking for what percentage of their funds went to what department or the number of students served, for example.

"You always have to tell them something," she said.

'A common problem'

According to the Navy's report, a $25,000 gift from a private corporation to the foundation stipulated it be used to sponsor an "education symposium" for NPS students.

Instead, $19,680 of the donation was used for an event called the Transformative Education Forum in which only faculty and staff attended.

Under Secretary of the Navy Robert O. Work said Wednesday afternoon at a news conference that the relationship between a university and its foundation is "a common problem."

He cited a 2010 Navy investigation in which the superintendent of the U.S. Naval Academy in Annapolis, Md., was ousted for, among other things, how he used money raised by the academy's foundation.

Phillip Molnar can be reached at 646-4487 or pmolnar@montereyherald.com.